Numerical and anecdotal evidence suggest that if bitcoin will prove popular as a currency anywhere, it should in Argentina.

According to the Bitcoin Market Potential Index (BMPI), which ranks bitcoin’s potential utility across 177 countries, Argentina is the most likely country to adopt the digital currency.

It’s economy is one of the most problematic globally, boasting annual inflation of approximately 35%. In theory, this means monetary stability in Argentina is particularly weak. In practice, it has led to a thriving black market for alternative means of exchange.

Small, fervent user base

The prominence of bitcoin in Argentina isn’t in dispute, with interviewees telling CoinDesk its adoption is comparable to that seen in New York or San Francisco.

Tech entrepreneur Joan Cwaik, for example, estimates Argentina has anywhere from 8,000 to 20,000 bitcoin owners, trading approximately $70,000–$80,000 over-the-counter per day. Wences Casares, founder of bitcoin security company Xapo, recently told CoinDesk that Argentina presented one of the most real-use cases for the digital currency.

But an arguably better question that hasn’t emerged amidst the coverage is ‘How could bitcoin conquer Argentina?’, given that, to expand its user base, the country’s entrepreneurs will likely need the tools necessary to develop businesses that can bolster adoption beyond a small, but fervent user base.

Local experts suggest this part of the ecosystem remains, at best, poorly developed, as evidenced by entrepreneur Sebastian Serrano, who admits he had to perform “several hacks” to get his bitcoin processing firm BitPagos off the ground – including relocating to San Francisco in a bid to find investors.

Serrano told CoinDesk:

“In South America, there are a lot of entrepreneurs, but there isn’t that many startups. This is something more broad. It’s not just bitcoin.”

As noted by Serrano, the Times’s expose on Argentina uncovered ample evidence of this. Its lead protagonist, Dante Castiglione, a bitcoin broker is followed as he hops from office to office exchanging stacks of pesos for bitcoin in what appears to be a thriving small business.

“He’s like a little Coinbase or broker that is not online, but he is basically going places and doing exchanges and that’s something very typical,” Serrano continued. “If the country wasn’t dysfunctional there would be big companies doing that.”

Funding crunch

BitPagos isn’t the only startup active in Argentina.

Other notable startups include Bitex.la, SatoshiTango and Unisend, but this handful of companies only account for approximately one-fifth of the latest batch incorporated to San Francisco-based incubator Boost VC, which supported more than 20 bitcoin firms.

Though adoption may be as high as in New York or San Francisco, it’s clear that this activity hasn’t generated the same interest from local investors.

Carlos Jorge Guberman, head of a research program on economics of cryptocurrencies at Universidad Argentina de la Empresa, described Argentina’s entrepreneurship problem in more general terms, suggesting the funding gap experienced by bitcoin firms is far from unique.

“I think that the lack of funding is a fundamental problem. Argentina has a very small capital market, limited to big companies and banks are prohibited by the central bank from lending to startups,” he told CoinDesk.

Guberman voiced his belief that the local distrust of banks and financial institutions may have transcended to the venture capital sector, with business owners unwilling to open their operations to capital from institutions.

“There are a few private … angel investors, there are also a few online funding platforms but they are not that well-known or used,” he added. “Argentina’s financial institutions also result in a series of limitations which can prevent entrepreneurial spirit from flourishing. This has meant that bitcoin has emerged as more of way of evading rate controls instead of people just wanting to take advantage of this fantastic technology,” he noted.

His perceptions are backed by Practical Law’s guide of venture capital law in Argentina. Its assessment, published in 2012, states:

“Seed capital is typically provided by angel investors, generally relatives or acquaintances of the entrepreneurs.”

Cwaik described the process as of funding procurement as “long-winded”, suggesting that local bankruptcy and employee rights laws also contribute to the lack of funding.

This is not to say that Argentina’s bitcoin startups are not benefitting from large-scale funding. Xapo, perhaps the most well-known bitcoin company connected to the country, has raised $40m in two venture capital rounds. However, although its team hails from Argentina, Xapo based its operations in the US before moving to Switzerland and catering to a global user base.

Entrepreneurial culture

It seems, however, that the apparent lack of venture capital funding has not hampered the country’s entrepreneurial spirit.

“Chile has the conditions, Brazil has the market and Argentina has the entrepreneurs,” noted Juan Martin Rodriguez, executive director at IAE University’s startup programme Naves.

There is no perceived lack of ideas in Argentina, the issue resides in the country’s political instability. “There are many potential startups and lots of ideas, many opportunities and a lot of talent among entrepreneurs, in fact they are some of the most qualified in the region, but the political context makes everything harder.”

Rodriguez, however, seemed enthused about possible changes to the socio-political landscape, speaking about what a change in government would mean for the country’s entrepreneurs.

Like Rodriguez, Guberman also highlighted the role played by Argentina’s business schools in shaping future generations of entrepreneurs.

Despite this, he said entrepreneurs like Xapo CEO and Argentinian native Wences Casares are few and far between.

It’s probably safe to say that Argentina could benefit from a viable alternative to fiat currency, to enable its population to evade its crippling annual inflation. Whether bitcoin is the solution to the problem, however, remains to be seen.

Although the digital currency’s uptake is seemingly on the rise, the question of whether crypto startups can survive within the country’s frontiers remains. The evidence suggests that whilst Argentina is a hot-bed for ideas, it seems the funding necessary to take these ideas to fruition must be procured elsewhere.

Some are hopeful that the upcoming general election, due to take place in October this year, will bring renewed opportunities, perhaps enabling startups to grown and rise in Argentina.

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